Citizens poised to further cull policies

About half the insurer's clients will be shifted to private companies if they do not object

By LLOYD DUNKELBERGER

Citizens Property Insurance is undergoing an unprecedented shift of policyholders from the state-run company to private insurers.

By the end of the year, state insurance regulators are expected to approve the removal of nearly 600,000 Citizens customers from the state's largest property insurer, which now covers some 1.2 million policyholders.

Not that many Citizens customers will leave the state-backed coverage; the numbers reflect removal requests that may be duplicated by private companies seeking the same policies, while roughly one-third of the Citizens policyholders will exercise their right to reject the move.

Nonetheless, Barry Gilway, Citizens' president and chief executive, told the Senate Banking and Insurance Committee on Tuesday that he expects Citizens will net a reduction in the range of 250,000 to 300,000 policies — offset by new policies — that will result in the insurer covering less than a million by early next year.

It would be the first time Citizens' coverage has dropped to that level since 2005, and would be well below the 1.5 million policy peak reached in 2012.

The reduction in Citizens policies will translate into lower exposure for the government-backed insurer in the event of a major hurricane strike.

Even at the 1.2-million-policy level, Gilway said Citizens has lowered its total exposure by $140 billion over the last two years, with a related drop in projected losses from a massive 1-in-100-year storm from $21.8 billion to $18.6 billion.

The reduced exposure also lowers the prospect of a so-called “hurricane tax” — an assessment on most insurance policies in the state, including auto coverage, if Citizens cannot pay for its losses.

“I suggest to you that there has been huge progress,” Gilway told the lawmakers.

Senators who have long criticized the growth of Citizens readily agreed.

“I think it's time to party,” said Sen. Alan Hays, R-Umatilla, who called it the “best” insurance news he has heard in nearly a decade in the Legislature.

Others offered more cautious appraisals.

Sen. Jeff Clemens, D-Lake Worth, said one major tool the state has used in enticing private companies to enter the property insurance market is through higher premiums.

“We've raised rates on a lot of consumers and have made it very difficult for them to be able to afford homeowners insurance,” Clemens said.

Sen. Tom Lee, R-Brandon, wrote Gilway earlier this month complaining that while he supports the “take-out” program, Citizens was giving policyholders inadequate information weighing the benefits and risks, while not addressing the critical issue of the cost of the new policies.

Gilway said Citizens immediately responded to Lee's critique and is now offering a “more balanced” information letter, while taking steps to give customers policy cost information even if the take-out companies will not provide it.

But he cautioned that the policy cost comparisons were often inaccurate because of pending rate changes for either Citizens or the private companies.

Another controversy over the shift of policyholders from Citizens revolves around the private companies themselves.

Gilway and Bruce Lucas, chairman and chief investment officer for Heritage Insurance Co., defended Citizens' decision earlier this year to quickly push through a deal that allowed Heritage to earn up to $52 million for taking over Citizens' policies. The company has been paid about $33 million so far after claiming some 39,000 policies.

The deal has drawn more scrutiny since the year-old Heritage also gave about $150,000 to Gov. Rick Scott's re-election campaign and the state Republican Party.

Gilway called it “a fantastic transaction,” saying Heritage's removal of policies had resulted in a $12 billion reduction in Citizens” exposure and lowered reinsurance costs by $10 million.

However, Gilway conceded there were “communication” problems with the deal, including its rapid approval — which sidestepped some of the normal Citizens' review processes for approving take-out companies. Gilway said future deals would be vetted through the normal process.

Clemens questioned the concept of private firms approaching the state with deals, rather than the state seeking competitive bids.

If the state handled its road contracts in the same manner, “I think several of us would be in jail,” Clemens said. If the state likes competition, a bidding process “would seem to be a more open and transparent way of getting these deals done,” he said.

The rush of private insurers to claim Citizens' customers is expected to slow with the start of a new state insurance clearinghouse, which is designed to offer Citizens' customers competitively priced private policies.

The clearinghouse is likely to provide coverage to the more attractive policies in Citizens' portfolio, leaving private insurers with fewer take-out targets, Gilway said.

Gilway said the clearinghouse will have a beneficial impact for Citizens because fewer new policies will be coming in as consumers wont be eligible for state-backed coverage if they can find competitively priced policies in the clearinghouse.

Meanwhile, Lee, a former Senate president, added another note of caution, saying some of the positive news about the reduction in Citizens' size is related to the fact that Florida has not been struck by a hurricane since 2005, a record-breaking lull.

“I think we have to be careful of taking victory laps and high fives,” he said.

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